Alibaba Shares Surge 19% on Cloud Growth, AI Chip Report

Alibaba’s Hong Kong-listed shares (9988-HK) experienced a significant surge, climbing over 19% on Monday. This rally was fueled by the robust performance of its cloud computing unit, which delivered strong quarterly results. Adding to the bullish sentiment, details emerged regarding the company’s advancements in AI chip development.

The stock reached its highest level since March, reflecting investor confidence in Alibaba’s rejuvenated cloud business and its strategic investments in emerging sectors. Notably, the company’s foray into the fiercely competitive arena of “instant commerce” in China has garnered attention, albeit triggering questions about short-term profitability versus long-term gains.

This Hong Kong rally builds upon the positive momentum generated by Alibaba’s earnings report of the preceding Friday, where its New York-listed shares (BABA) closed nearly 13% higher, signaling a clear shift in investor sentiment.

Last week, Alibaba released its revenue figures for the June quarter, reporting 247.65 billion Chinese yuan ($34.73 billion). While this represented a 2% year-on-year increase, it fell slightly short of analyst expectations. However, the company’s net income presented a brighter picture, surging 78% annually and exceeding forecasts significantly.

The crown jewel in Alibaba’s earnings report was undoubtedly its cloud computing unit. The division witnessed a notable acceleration in growth, with revenue expanding by an impressive 26% year-on-year – outpacing the growth rate observed in the previous quarter. This consistent upward trajectory underlines the strategic importance of cloud services in Alibaba’s overall portfolio.

Echoing the strategies of its global tech peers, Alibaba has been making substantial investments in AI infrastructure and developing its own large language models. Furthermore, the company is actively commercializing its AI capabilities through its cloud computing unit, offering a suite of AI-powered services to businesses. Investors view this division as critical to Alibaba’s ambitions to effectively monetize the burgeoning field of artificial intelligence, drawing comparisons to the approaches adopted by tech giants like Microsoft and Google.

Illustrating the rapid adoption of its AI offerings, Alibaba reported that AI-related product revenue “maintained triple-digit year-over-year growth for the eighth consecutive quarter,” underscoring the increasing demand for its AI solutions.

Adding further fuel to investor enthusiasm, CNBC reported on Friday about Alibaba’s cutting-edge AI chip development project. This strategic initiative is perceived as vital to bolster the company’s competitive edge in the rapidly evolving AI landscape, further supporting Monday’s share price surge.

Meanwhile, Alibaba’s core e-commerce business is showing promising signs of revival. Simultaneously, the company has aggressively entered China’s intensely competitive instant commerce market. Taobao, one of Alibaba’s flagship e-commerce platforms, now provides consumers with the option of ultra-fast delivery, promising to deliver selected products within an hour.

While these investments in quick commerce have exerted some pressure on Alibaba’s adjusted earnings for its e-commerce operations, investors appear willing to grant the company some leeway to pursue its strategic growth ambitions.